8-1

Chapter

8
Accounting
for Purchases
and Accounts Payable
Section 1: Merchandise Purchases
Section Objectives

1. Record purchases of merchandise on credit in a

three-column purchases journal.

2. Post from the three-column purchases journal

to the general ledger accounts.

McGraw-Hill © 2009 The McGraw-Hill Companies, Inc. All rights reserved.

 Purchasing Procedures

The Sales Department

sends an authorized purchase requisition to the Purchasing Department.

The Purchasing Department

issues an authorized purchase order and sends to the selected supplier.

A receiving report is prepared when the merchandise is received.

The Accounting Department

receives the invoice and copies of the purchase order and receiving report.

8-3
 International Apparel Shop

January 23, 20—

The Style Shop
9001
2007 Trendsetter Lane
Metroplex Express
Dallas, TX 75268
n/30

January 23, 20-- Metroplex

10 4760.00
360.00
5,120.00

This is a purchase invoice for the customer.

This is a sales invoice for the seller.

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QUESTION: Wow! I need
to order more
What is the Purchases inventory!
account?
ANSWER:

The Purchases account

is an account used to
record cost of goods
bought for resale
during a period.

8-5
 Account Classifications
Recall the major account classifications from earlier
chapters:
 Assets
 Liabilities
 Owner’s Equity
 Revenue
 Expenses

The Purchases account is under a different

classification:
 Cost of Goods Sold

8-6
QUESTION:

What is the Freight In account?

ANSWER:

The Freight In account is an account

showing transportation charges for
items purchased. It is also called
Transportation In account.

8-7
 Cost of Goods Sold

Price of goods (debit Purchases) $4,760.00

Freight charge (debit Freight In) 360.00
Total invoice (credit Accounts Payable) $5,120.00

Purchases + Freight In = Accounts Payable

Dr. Cr. Dr. Cr. Dr. Cr.

4,760 360 5,120

The cost of goods sold accounts have normal

debit balances.

8-8
 GENERAL JOURNAL PAGE 1

DATE DESCRIPTION POST. REF. DEBIT CREDIT

20– 3 Purchases 501 2,675.00

Jan. Freight In 502 190.00
Accounts Payable 205 2,865.00
Purchased merchandise from
Fashion Design Inc.,
Invoice 5879, dated Dec. 29,
terms 2/10, n/30
5 Purchases 501 3880.00
Freight In 502 175.00
Accounts Payable
Purchased merchandise from
205 These four general
3,620.00

The Trend Center, Invoice 633, journal entries

dated Dec. 30, terms n/30
require twelve
6 Purchases 501
Freight In 502
separate postings to
2700.00
Accounts Payable 205 general
220.00 ledger
Purchased merchandise from 2,920.00
The Modern Woman, Invoice 8011, accounts. It takes a
dated Dec. 31, terms n/30 great deal of time and
7 Purchases 501 3,850.00
Freight In 502 effort
450.00 to post them.
Accounts Payable 205 3,935.00
Purchased merchandise from
World of Fashions, Invoice 4321, dated
Dec. 31, terms 2/10, n/30

8-9
 PURCHASES JOURNAL PAGE 1
DATE CREDITOR’S INVOICE INV. TERMS POST. ACCOUNTS PURCHASES FREIGHT IN
ACCOUNT NUMBER DATE REF. PAYABLE DEBIT DEBIT
CREDITED CREDIT
20--
Jan. 3 Fashion Designs 8434 12/29/-- 2/10, n/30 2,865.00 2,675.00 190.00
5 The Trend Center 336 12/30/-- n/30 4,055.00 3,880.00 175.00
6 Modern Woman 9080 12/31/-- n/30 3,140.00 2,900.00 240.00
7 World of Fashions 4321 01/03/-- 2/10, n/30 3,935.00 3,675.00 260.00
18 Fashion Warehouse 9789 01/15/-- 2/10, n/30 4,200.00 3,860.00 340.00
ACCOUNT Accounts
22 Inter’l Apparel Shop Payable
7985 01/22/-- ACCOUNT
2/10, n/30 NO. 205
5,120.00 4,760.00 360.00
31 23,315.00 21,750.00 1,565.00
DATE DESCRIPTION POST. DEBIT CREDIT BALANCE
(205) (501) (502)
REF. DEBIT CREDIT
20-- ACCOUNT Purchases ACCOUNT NO. 501
Jan. 1 Balance  5,400.00
DATE DESCRIPTIONJ1 3,250.00
POST. DEBIT CREDIT 8,650.00 BALANCE
REF. DEBIT CREDIT
ACCOUNT
20-- Freight In ACCOUNT NO. 502
Jan. J1 3,000.00 3,000.00
DATE DESCRIPTION POST. DEBIT CREDIT BALANCE
REF. DEBIT CREDIT
20--
Jan. 31 P1 1,565.00 1,565.00

8-10
Objective 1 Record purchases of merchandise on credit
in a three-column purchases journal
PURCHASES JOURNAL PAGE 1
DATE CREDITOR’S INVOICE INV. TERMS POST. ACCOUNTS PURCHASES FREIGHT IN
ACCOUNT NUMBER DATE REF. PAYABLE DEBIT DEBIT
CREDITED CREDIT
20--
Jan. 3 Fashion Designs 8434 12/29/-- 2/10, n/30 2,865.00 2,675.00 190.00
5 The Trend Center 336 12/30/-- n/30 4,055.00 3,880.00 175.00
6 Modern Woman 9080 12/31/-- n/30 3,140.00 2,900.00 240.00
7 World of Fashions 4321 01/03/-- 2/10, n/30 3,935.00 3,675.00 260.00
18 Fashion Warehouse 9789 01/15/-- 2/10, n/30 4,200.00 3,860.00 340.00
22 Inter’l Apparel Shop 7985 01/22/-- n/30 5,120.00 4,760.00 360.00
31 23,315.00 21,750.00 1,565.00
(205) (501) (502)

1. Enter the date, supplier’s name, invoice number, invoice

date, and credit terms.

2. In the Accounts Payable Credit column, enter the total owed to

the supplier.
8-11
 PURCHASES JOURNAL PAGE 1
DATE CREDITOR’S INVOICE INV. TERMS POST. ACCOUNTS PURCHASES FREIGHT IN
ACCOUNT NUMBER DATE REF. PAYABLE DEBIT DEBIT
CREDITED CREDIT
20--
Jan. 3 Fashion Designs 8434 12/29/-- 2/10, n/30 2,865.00 2,675.00 190.00
5 The Trend Center 336 12/30/-- n/30 4,055.00 3,880.00 175.00
6 Modern Woman 9080 12/31/-- n/30 3,140.00 2,900.00 240.00
7 World of Fashions 4321 01/03/-- 2/10, n/30 3,935.00 3,675.00 260.00
18 Fashion Warehouse 9789 01/15/-- 2/10, n/30 4,200.00 3,860.00 340.00
22 Inter’l Apparel Shop 7985 01/22/-- n/30 5,120.00 4,760.00 360.00
31 23,315.00 21,750.00 1,565.00
(205) (501) (502)

3. In the Purchases Debit column, enter the price of the goods

purchased .

4. In the Freight In Debit column, enter the freight amount.

8-12
 Examples of Credit Terms
 Net 30 days or n/30:
Payment in full is due 30 days after the date of the invoice.

 Net 10 days EOM, or n/10 EOM:

Payment in full is due 10 days after the end of the month
in which the invoice was issued.

 2% 10 days, net 30 days; or 2/10, n/30:

If payment is made within 10 days of the invoice date, the
customer can take a 2 percent discount. Otherwise,
payment in full is due in 30 days.

8-13
Objective 2 Post from the three-column purchases
journal to the general ledger accounts

 The purchases journal simplifies the posting process.

 Summary amounts are posted at the end of the month.

8-14
Post from the Purchases Journal to the general
ledger in six steps.
1. Locate the Accounts Payable account.
2. Enter the date.
3. Enter the posting reference.
4. Enter the amount from the Accounts Payable Credit column
in the purchases journal in the Credit column of the Accounts
Payable ledger account.
5. Compute the new balance and enter it into Balance Credit
column.
6. In the purchases journal, enter the general ledger account
number under the column total.
7. Repeat the steps for the Purchases Debit and Freight In Debit
columns
8-15
 PURCHASES JOURNAL PAGE 1
DATE CREDITOR’S INVOICE INV. TERMS POST. ACCOUNTS PURCHASES FREIGHT IN
ACCOUNT NUMBER DATE REF. PAYABLE DEBIT DEBIT
CREDITED CREDIT
20--
Jan. 3 Fashion Designs 5879 12/29/-- 2/10, n/30 2,865.00 2,675.00 190.00
5 The Trend Center 633 12/30/-- n/30 4,055.00 3,880.00 175.00
6 Modern Woman 8011 12/31/-- n/30 3,140.00 2,900.00 240.00
7 World of Fashions 4312 01/03/-- 2/10, n/30 3,935.00 3,675.00 260.00
18 Fashion Warehouse 8997 01/15/-- 2/10, n/30 4,200.00 3,860.00 340.00
22 Inter’l Apparel Shop 7985 01/22/-- n/30 5,120.00 4,760.00 360.00
31 23,315.00 21,750.00 1,565.00
(205) (501) (502)

ACCOUNT Accounts Payable ACCOUNT NO. 205

DATE DESCRIPTION POST. DEBIT CREDIT BALANCE

REF. DEBIT CREDIT
20--
Jan. 1 Balance  10,800.00
31 P1 23,315.00 23,315.00

8-16
 PURCHASES JOURNAL PAGE 1
DATE CREDITOR’S INVOICE INV. TERMS POST. ACCOUNTS PURCHASES FREIGHT IN
ACCOUNT NUMBER DATE REF. PAYABLE DEBIT DEBIT
CREDITED CREDIT
20--
Jan. 3 Fashion Designs 5789 12/29/-- 2/10, n/30 2,865.00 2,675.00 190.00
5 The Trend Center 633 12/30/-- n/30 4,055.00 3,880.00 175.00
6 Modern Woman 8011 12/31/-- n/30 3,140.00 2,900.00 240.00
7 World of Fashions 4312 01/03/-- 2/10, n/30 3,935.00 3,675.00 260.00
18 Fashion Warehouse 8997 01/15/-- 2/10, n/30 4,200.00 3,860.00 340.00
22 Inter’l Apparel Shop 7985 01/22/-- 2/10, n/30 5,120.00 4,760.00 360.00
31 23,315.00 21,750.00 1,565.00
(205) (501) (502)

ACCOUNT Freight In ACCOUNT NO. 502

DATE DESCRIPTION POST. DEBIT CREDIT BALANCE

REF. DEBIT CREDIT
20--
31 P1 1,565.00 1,565.00

8-17
Advantages of a Purchases Journal

 Allows for the division of accounting work among

different employees
 Strengthens the audit trail
 Records all credit purchases in one place

8-18
 Chapter

8
Accounting
for Purchases
and Accounts Payable
Section 2: Accounts Payable
Section Objectives
3. Post credit purchases from the purchases journal to the
accounts payable subsidiary ledger.
4. Record purchases returns and allowances in the general
journal and post them to the accounts payable subsidiary
ledger.
5. Prepare a schedule of accounts payable.
6. Compute the net delivered cost of purchases.
7. Demonstrate a knowledge of the procedures for effective
internal control of purchases.
McGraw-Hill © 2009 The McGraw-Hill Companies, Inc. All rights reserved.
 The Accounts Payable Ledger

NAME International Apparel Shop TERMS n/30

ADDRESS 1718 Sherry Lane, Dallas, Texas 75267-6205

DATE DESCRIPTION POST. DEBIT CREDIT BALANCE

REF.
20--
JAN.
1 Balance  1,600.00
23 Invoice 7985, 01/23/-- P1 5,120.00 6,720.00

 The accounts payable ledger has three money columns.

 The Balance column is presumed to contain credit amounts.

8-20
Objective 3 Post credit purchases from the purchases journal
to the accounts payable subsidiary ledger

To keep the accounting records up to date, invoices

are posted to the accounts payable subsidiary
ledger every day.

8-21
 Steps to post to the accounts payable ledger
Enter the date, invoice number and date, and the page number from the
purchases journal.
PURCHASES JOURNAL PAGE 1
DATE CREDITOR’S INVOICE INV. TERMS POST. ACCOUNTS PURCHASES FREIGHT IN
ACCOUNT NUMBER DATE REF. PAYABLE DEBIT DEBIT
CREDITED CREDIT
20--
Jan. 3 Fashion Designs 5879 12/29/-- 2/10, n/30  2,865.00 2,675.00 190.00
18 Designer’s Fashion 9789 01/15/-- 2/10, n/30 2,100.00 1,930.00 170.00
23 Intern’l Apparel Shop 7985 01/23/-- n/30  5,120.00 4,760.00 360.00

3
NAME International Apparel Shop TERMS n/30

ADDRESS 1718 Sherry Lane, Dallas, Texas 75267-6205

1 2
DATE DESCRIPTION POST. DEBIT CREDIT BALANCE
REF.
20--

JAN.
1 Balance 1,600.00
23 Invoice 7985, 01/22/-- P1 5,120.00 6,720.00

8-22
From the purchases journal, write the dollar amount of the purchase in
the credit column of the subsidiary ledger. Recalculate the current
balance in the ledger. Then enter the check mark in the Posting
Reference column back in the journal to indicate that the transaction is
posted in the accounts payable subsidiary
PURCHASES ledger.
JOURNAL PAGE 1
DATE CREDITOR’S INVOICE INV. TERMS POST. ACCOUNTS PURCHASES FREIGHT IN
ACCOUNT NUMBER DATE REF. PAYABLE DEBIT DEBIT
CREDITED CREDIT
20--
Jan. 3 Fashion Designs 5879 12/29/-- 2/10, n/30  2,865.00 2,675.00 190.00
18 Designer’s Fashion 9789 01/15/-- 2/10, n/30 2,100.00 1,930.00 170.00
23 Intern’l Apparel Shop 7985 01/23/-- n/30  5,120.00 4,760.00 360.00

3
NAME International Apparel Shop TERMS n/30

ADDRESS 1718 Sherry Lane, Dallas, Texas 75267-6205

1 2
DATE DESCRIPTION POST. DEBIT CREDIT
4 BALANCE
REF.
20--

JAN.
1 Balance
5 1,600.00
23 Invoice 7985, 01/22/-- P1 5,120.00 6,720.00

8-23
Cash Payments are posted as debits in the A/P Ledger.

The cash payment is then posted to the individual

creditor’s account in the accounts payable ledger.

NAME International Apparel Shop TERMS n/30

ADDRESS 1718 Sherry Lane, Dallas, Texas 75267-6205

DATE DESCRIPTION POST. DEBIT CREDIT BALANCE

REF.
20--

Jan. 1 Balance  1,600.00

23 Invoice 7985, 01/22/-- P1 5,120.00 6,720.00
27 CP1 2,400.00 4,320.00

Posted from page 1 of the cash payments journal

8-24
Objective 4

Record purchases returns

and allowances in the general
journal and post them to the Sorry, I
accounts payable subsidiary didn’t like
the color.
ledger
A purchase return is a
return of unsatisfactory
goods.

8-25
A credit to the Purchase Returns and Allowances
account is made when a vendor returns something to a
supplier.

Purchases Returns and Allowances

Returns
and
Allowances

A complete record of returns and allowances

A contra cost of goods sold account
 Normal credit balance
8-26
 Business Transaction

On January 30 The Style Shop received a credit

memorandum for $476 from International Apparel
Shop as an allowance for damaged merchandise.

International Apparel Shop

1718 Sherry Lane
Dallas, TX 75267

The Style Shop

2007 Trendsetter Lane
Dallas, TX 75268

$476.00

8-27
 Purchase Allowance

Accounts Payable Purchases Returns and Allowances

476 476

8-28
 Posting from the General Journal
GENERAL JOURNAL PAGE 1

DATE DESCRIPTION POST.

REF. DEBIT CREDIT
Jan. 30 Accounts Payable/ 205/  476.00
International Apparel Shop
Purchases Returns and Allowances 503 476.00
Received Credit Memo 103 for Enter the date, the
an allowance for damaged credit memorandum
number, and the
merchandise; original Invoice
general journal page
1 7985, Jan. 23, 20-- 2 number.
3
NAME International Apparel Shop TERMS n/30

Enter the amount ofADDRESS 1718 Sherry Lane, Dallas, Texas 75267-6205
the return or
allowance in the DATE DESCRIPTION POST. DEBIT CREDIT BALANCE
Debit column of the REF. 4
20--
creditor’s account. JAN.
Update the balance. 1 Balance  1,600.00
23 Invoice 7985, 01/23/-- P1 5,120.00 6,720.00
27 CP1 2,400.00 4,320.00
30 CM 103 J1 476.00 5 3,844.00
Objective 5 Prepare a schedule of accounts
payable

The total of the individual creditor accounts in the

subsidiary ledger must equal the balance of the
Accounts Payable control account.

To prove that the control account and the

subsidiary ledger are equal, businesses prepare a
schedule of accounts payable.

8-30
 The Style Shop
Schedule of Accounts Payable
January 31, 20--
Fashion Designs 1065.00
Fashion Warehouse 4,200.00
A comparison of the total
International of theShop
Apparel schedule of 3,844.00
accounts payable
Modern and the balance of the
Woman 4,740.00
Accounts Payable account shows that the
two figures The
are Trend Center
the same. 2,205.00
World Of Fashions 6,935.00
Total 22,989.00
ACCOUNT Accounts Payable ACCOUNT NO. 205

DATE DESCRIPTION POST. DEBIT CREDIT BALANCE

REF. DEBIT CREDIT

20--

Jan. 1 Balance  10,800.00

30 J1 476.00 10,324.00
31 P1 23,315.00 33,639.00
31 CP1 12,710.00 22,989.00

8-31
Objective 6 Compute the net delivered
cost of purchases

The income statement of a merchandising

business contains a section showing the
total cost of purchases.

This section combines information about

 Cost of the purchases
 Freight in
 Purchases returns and allowances

8-32
The net delivered cost of purchases for The Style
Shop for January is calculated as follows.
Purchases $ 23,315
Freight In 1,565
Delivered Cost of Purchases $ 24,880
Less Purchases Returns and Allowances 476
Net Delivered Cost of Purchases $24,404

8-33
Objective 7 Demonstrate a knowledge of the procedures
for effective internal control of purchases

The objectives of the controls are to:

 create written proof that purchases and

payments are authorized, and
 ensure that different people are involved
in the process of buying goods, receiving
goods, and making payments.

8-34
 Effective systems have the following controls in place.

1. All purchases should be made only after proper

authorization has been given in writing.

2. Goods should be carefully checked when they are

received. They should then be compared with the
purchase order and with the invoice received from the
supplier.

3. The purchase order, receiving report, and invoice should

be checked to confirm that the information on the
documents is in agreement.

8-35
4. The computations on the invoice should be checked
for accuracy.

5. Authorization for payment should be made by someone

other than the person who ordered the goods, and this
authorization should be given only after all the
verifications have been made.

6. Another person should write the check for payment.

7. Prenumbered forms should be used for purchase

requisitions, purchase orders, and checks. Periodically the
numbers of the documents issued should be verified to
make sure that all forms can be accounted for.

8-36
 Thank You
for using

College Accounting, 12th Edition

Price • Haddock • Farina

8-37